Tuesday, 14 July 2020

Boohoo shares fall further as garment factory scandal rumbles on

Shares in under-pressure online retail giant Boohoo continued to fall this week with an 18% drop on Monday alone and an almost 6% fall so far on Tuesday.

It means the company's shares are trading at the time of writing at around 217p each, well down from the 415p each they reached only a month ago. That puts the company’s current valuation at ‘only’ £2.74 billion, which means that it's nowhere near reaching the £7.55 billion that it's targeting for three years’ time in order to trigger its latest (and heavily criticized) senior management incentive plan. 

The latest share price falls come after damaging revelations around its supply chain that showed the company has used factories in Leicester that are paying well below the minimum wage and that are also operating unsafe social distancing practices. Boohoo hasn't been employing them directly, as they've been subcontractors for other factories, but lack of awareness of the issue has been seen as no defense and the mud has been sticking so far.

The quiz was also caught up in the latest revelations this week and it’s unlikely to be the last company finding itself with negative headlines around its supply chain.

The bad PR started just over a week ago but this week’s Boohoo share price falls came on the back of additional reports of issues in Leicester factories where a big chunk of its stock is sourced.

Financial analysts have suggested that the firm’s UK growth rate could fall by as much as half due to the negative publicity and that its costs could rise by as much as £20 million as it’s forced to spend heavily to make its supply chain more robust. 

Those analysts believe Boohoo needs to do more to shake off the scandal and that its commitment to an investigation and to make changes won’t be enough.

Yet whether it will hurt Boohoo long term is open to question. Yes, there have been suggestions that the UK growth rate could slow, but it may also recover fast, and its growth abroad isn’t seen as being heavily affected.

We have to remember that Primark has also weathered accusations of poor working conditions for those who make its clothes. But it has seen its reputation regaining some of its lusters as it has taken a number of actions to make its supply chain more transparent. This week its parent company was described by the UK Treasury as “a credit to the country” for refusing another government handout and the chain’s sales are also bouncing back.

No comments:

Post a comment